Before the crash, much hope was placed in "decoupling" -- essentially the belief that we were not _so_ globalised that a fall in demand from Americans rebuilding their savings would be contagious everywhere else. One view of the most sensible reflation policies -- pump prime demand in China -- is to create by policy the decoupling we did not have automatically.

This one is interesting from the p.o.v. of the UK and other highly-leveraged small open economies. Gordon Brown wants to have government spending and tax cuts in the UK to make up for the lack of spending from households and the rest of the world. But there is real trouble for a small open economy "going it alone": much of the stimulus leaks abroad in imports; interest rates have to be raised to attract lending to the government; or money has to be printed, increasing inflationary expectations and so forcing government to pay higher rates on debt to avoid a run on the currency. (The Shadow Chancellor is in trouble for pointing out this particualr difficutly of being small). Mitterand's attempted 1981 reflation was the classic case of an open economy that could no longer operate Keyneisanism in 1 country.

If everyone reflates together, the worry about import leaks disappears; also, the exchange rate worry disappears, since there is little relative difference between currencies. Viewed in this light, Gordon Brown's emphasis on the international coordination aspects of the crisis is in the UK's narrow interest.

There was a certain allignment between the "Washington consensus" of the immediate post cold war and the neo-connery that followed. The Washington consensus was that pro-free trade, pro-market reforms (and maybe democratic reform also) would rapidly end poverty in the less developed economies. Neo-connery was frustrated at the slow-pace of reform and added institutional change by force to the list of medicine that might be needed,

Now, if the World Bank starts to lend more freely and has more capital to hand out, will the questions of control over the spending be refashioned? Or do tanks eventually follow where World Bank money has blazed the trail?

States vote against "regulatory arbitrage" like turkeys against Christmas ... my sympathies tend to lean towards the turkeys.

Delivering on this will require regulation of bonus contracts. Good.

Credit rating is at the heart of what went wrong. Banks paid agencies to rate their complex products. Surprise - the rating agencies gave good clients good ratings, even if they understood nothing about -- or worse, overlooked -- the risks they were supposedly judging.

Have a multilateral institution like the BIS provide public credit ratings. Levy a tax on financial institutions to pay for it (yes, even a Tobin tax). Make the jobs incredibly attractive - as good as being a civil servant in Signapore.

A code of conduct sounds like the kind of thing that monetary incentives will pervert in no time.

At least a part of the difficulty with figuring out how bad things are in the financial sector has come out of the habitual use of opaque offshore "Special Investment Vehicles" to build complex financial products. I take it that this clause says: "we'll clamp down on the Cayman Islands Financial Authority".

I wonder how you credibly threaten to do that. Assume there'll always be a jurisdiction out there that carves a niche out of off-shoring. You have to say: "if your financial product is contaminated with off-shore structures, we will stop you from benefiting from lender-of-last resort protection from the international and national institutions."

But the SIV's were meant to be off balance sheet until it turned out they were too big to fail. Remember, the UK taxpayer is now the proud owner of Granite, a huge tax-dodge in Jersey that is attached to Northern Rock.

The problem with "too big to fail" is enforcing regulatory threats. So I think that very serious anti-trust needs to be part of this re-working of banking to stop size becoming an excuse for turning a blind eye to suspect behaviour.

or ease up on limited liability, maybe - as in http://www.opendemocracy.net/globalization-institutions_government/corporate_responsibilities_4605.jsp and http://www.opendemocracy.net/audio/admin/corporate_liability_and_social_interest

I guess that didn't prevent Lloyds...

Interesting leadership group. Note that the Fed extended swap lines to Korea and Brazil of the same type that it had extended to the UK. So everyone in that group is already part of the solution that effectively allows non-US central banks to create dollars.

This kind of control over agenda is important. Gordon Brown is in a good position to promote the interests of the small, over-leveraged open economy....

This is the criticism made of the Bank of International Settlements capital adeqacy definitions. When times get tough, asset values fall; so banks' capital is worth less, so they have to scale back on their lending.

Of course, the problem was more that the banks got around the BIS rules by creating off-balance sheet vehicles. If only they had followed BIS rules.

This is the argument about mark-to-market accounting.

When regulating bank capital and leverage, it is very important to be able to define what the value of the assets and liabilities are. Mark-to-Market rules are based on the idea that the market knows best, so market prices should be used to value assets and liabilities.

But when markets disappear for certain products in time of crisis, price goes to zero and, if they are part of banks' capital reserves, banks would have to corepsondingly cut lending.

An alternative proposal is to value capital "at maturity" -- what will this loan be worth in 5 years when it needs to be paid back?

You can be sure that all measures will be manipulated.

"Over the counter" markets are bilateral markets in tailor-made financial contracts. The trouble with these contracts is that no one has an overview of what everyone's positions are, so it is impossible to tell what the system-wide risk is if any one party defaults. Exchange-traded contracts, on the other hand, get system-wide information because they act as a clearing-house -- they record all trades and often offer settlement and other infrastructure services. It is therefore easier to regulate exchange-traded markets.

allign the incentives -- this could end up being a very powerful mechansim for policy. You want green investment? put it into the compensation metrics. The financial crisis has certainly shown us that the banking sector responds fast and massively to incentives. Youjust have to make sure they're the right ones.

International Financial Institutions

These are the centers of "moral hazard": they are too big to fail, so they take advantage of it. These are the ones that need to become regulated like utilities. (http://www.spectator.co.uk/email/the-magazine/business/642796/say-farewell-to-gentlemanly-capitalism.thtml)

I had the privilege of attending last year's "progressive governance summit" at which Gordon Brown, Pascal Lamy (WTO head), DSK (IMF head) and Peter Mandelson (then EU Trade Negotiator) all agreed that we needed an IMF that will be a real financial Early Warning System, a UN that will be a real resolver of conflict and a World Bank that will be a real promoter of the environment and a WTO that actually delivers the Doha round.

You can see this G20 setting the scene for that vision, except on the conflict side (naturally, this is about economics), but more strangely, there has been no mention of greenery at all so far...

OK .. here is climate change. A sort of footnote that says: "poverty and growth are not the only problems we have ..."

The basic mis-allignment of interests in accounting exercises must be recognised: accounting is always about monitoring, and the monitored would almost always prefer to be left alone. Reading this section on accounting standards, I do woner: "weren't we exactly here just recently with Enron and WorldCom? So why didn't that regulatory change fix these things?"

Because the conflict of interest is stronger than any standard can be.

What's the argument for this linkage?

This is Buiter's complaint -- that the UK has no special bankruptcy mechanism that makes it _possible_ to bankrupt banks, even ones that are not sytemically important but just politically important. See http://blogs.ft.com/maverecon/2008/11/could-the-uk-face-a-sterling-crisis-or-are-we-in-one-already/

This has to mean public provision

I'm puzzled by this one.... Anyone care to elucidate?

Who is the intl org of securities regulators? and how can they have the competence to review compliance?

I am a bit puzzled at the heavy weather made of the exchange traded point.

OTC makes it sound as if this market happens with bits of paper - contracts - traded. But not at all -- participants' positions are in sophisticated electronic form ... they are just dispersed. Centralising that daat is a regulatory question, not a "platforms" question.